How to Calculate Beginning-of-the-Month Inventory Values
Your beginning inventory value equals the end-of-the-month inventory value from the previous month. To determine the beginning inventory for the current month, you may need to calculate the inventory valuation from the previous month. Similarly, to determine the beginning value of next month's inventory, you must calculate the ending value of the current month's inventory. This process is calculated by determining the method you use to value your inventory and applying the method to all your inventory sales and purchases within the month.
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Instructions
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Determine your inventory valuation method. Businesses value inventory on a LIFO (last in, first out), or FIFO (first in, first out) method. Often, businesses use the FIFO method because companies tend to push older merchandise first. This allows an adequate rotation of fresh stock. For example, your grocery store prefers to sell the first inventory of milk before the newest inventory. If the grocery store did not use the FIFO method, it would have expired dairy products and loss of inventory.
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Create an inventory value sheet for the previous month's purchases. Your first entry is the beginning inventory value from the prior month. If you do not have a prior month value, enter zero. Label the first column "Beginning Inventory." In the second column, list the number of units available. In the third column, list the average value of each unit. In the fourth column, multiply the number of inventory units by the per-unit value. The result is your total inventory value at the beginning of the month. Remember, you are making a list using last month's figures. This is not the beginning inventory value for your current month.
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List inventory purchases and sales in date sequence, beginning with the earliest transaction. Follow the same format for each column. In the first column, label the transaction as an inventory purchase or sale. In the second column, list the number of units purchased or sold. In the third column, list the average value of the units, and in the fourth column, multiply the units by the value to determine the total value of the transaction.
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Apply your inventory value method to your sheet calculations. If you use the FIFO method, calculate your values from the beginning of the month to the end. If you use the LIFO method, work from the end of the month to the beginning. Adjust current inventory levels accordingly. Because inventory purchases may be made at various cost-per unit values, make your calculations based on unit values.
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